Property-casualty insurance company and producer groups are sharply at odds over legislation introduced last week in the U.S. Senate that would create a federal licensing process enabling insurers and producers to conduct business nationwide free of state regulations.

The “National Insurance Act of 2006″ would bar states from preventing or restricting producers with a state license from selling, soliciting or negotiating insurance on behalf of national insurers.

Although state insurance laws would be preempted generally, certain statutes would still apply, including laws related to participation in an assigned risk plan, mandatory joint underwriting association or any other residual market mechanism. Compulsory state insurance laws that prescribe mandatory coverage for workers' compensation, motor vehicle insurance or both would also still apply.

The bill would create a federal commissioner for insurers and producers that choose to be licensed and regulated at the federal level. An Office of National Insurance would be placed in the Treasury Department, headed by a commissioner appointed by the president, subject to Senate confirmation.

The bill permits the creation of insurance self-regulatory organizations for national insurers and intermediaries. The SROs would have the authority to enforce member compliance with federal insurance law, any regulations issued by the commissioner and the rules of the organization itself.

Although the bill permits the commissioner to delegate certain authorities to SROs, delegation of the authority to issue licenses and make rules is prohibited.

The bill was introduced by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D. Sources close to the legislation said they expect Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, to hold a hearing on the legislation, although no formal action is expected this year.

The insurance company and producer communities are divided over the measure.

The Independent Insurance Agents and Brokers of America said it will oppose the bill on behalf of its 300,000 members.

IIABA believes the bill will eventually “lead to increased regulatory burdens on our membership and will be harmful to consumers,” said Charles Symington, senior vice president of government affairs and federal relations. He noted that some 1,500 agents will fly to Washington and take their gripes directly to Capitol Hill later this month as part of the group's annual legislative conference and convention.

The National Association of Professional Insurance Agents is also opposed.

“Proposals for optional federal charters are like indigestion–something bad that has a tendency to keep coming back,” said PIA National President Ray L. Peretti. “PIA members will be telling Congress that we oppose optional federal charters, along with anything else that would undermine our system of state-based, functional regulation of insurance, which we support.”

But producers are not united on the issue. “Successful insurance agents and brokers do business on a multistate basis,” said Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, which backs the bill. “Why shouldn't a producer be able to choose between one regulatory system or 50?”

There is a similar fault line among p-c insurance company groups. The National Association of Mutual Insurance Companies is solidly opposed; the American Insurance Association is decidedly in favor; and the Property Casualty Insurers Association of America is taking a wait-and-see approach.

“While initial information about the proposed OFC legislation indicates that the bill contains several important free market provisions, it is important to remember that the measure is likely to be drastically changed as it undergoes congressional scrutiny,” said Ernie Csiszar, PCI's president and CEO, and a former president of the National Association of Insurance Commissioners.

As a result, he added, “PCI remains concerned about the establishment of a new federal bureaucracy with far-reaching authority over the insurance industry that is subject to the political whims of Congress.”

“As a former state regulator, I sincerely hope that my colleagues in the regulatory community…and in state legislatures across the country realize that the threat of federal intervention in insurance regulation is not a paper tiger,” he said. “While certainly not likely to be enacted this year, we hope that the introduction of OFC legislation will spur states to modernize the regulatory environment.”

However, state regulators and legislators questioned just how an optional federal charter would help consumers and improve the industry's regulation. “I'm not sure that it can be effective,” said Alessandro Iuppa, Maine's superintendent and president of the National Association of Insurance Commissioners.

Many products are state specific and many state laws would have to be preempted to create a system analogous to the one regulating banking, he added.

Having a dual regulatory system would also leave open the question of how well consumer questions and complaints would be handled, he said, asserting that state insurance departments offer quicker response time and are easier to deal with than interacting with a federal agency, which he described as “never easy, at best.”

“Who is this really for? How is the bill helping consumers?” said Susan Nolan, executive director of the National Conference of Insurance Legislators. “It isolates state legislators and commissioners from their constituencies.”

Ms. Nolan wondered whether there has been any cost analysis. “I understand a lot of businesses have an interest in this, but what is this all about? Streamlining business or taking care of the consumer?”

She added that “we don't think federal programs have worked so well in the past,” citing the savings and loan crisis, FEMA's poor response to recent disasters and ERISA disputes.

In a related development, the Senate Judiciary Committee, an hour before the bill's noon introduction on April 5, indicated it will hold a hearing on April 25 to discuss “The McCarran-Ferguson Act: Implications of Repealing the Insurers' Antitrust Exemption.”

Special Reports /

P-C Industry Split On Senate Bill To Create Optional Federal License

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